Ukraine-Russia conflict to hit Asian LNG

Spot prices are expected to be elevated, Rystad Energy said.

The conflict between Ukraine and Russia that sparked in February have hit the global gas markets, including Asia, Rystad Energy said.

Spot prices of Asian liquefied natural gas (LNG) is expected to reflect the widespread volatility and risk premiums on the title transfer facility (TTF) benchmark in Europe, Rystad Energy gas market analyst Wei Xiong told Asian Power.

Despite this, Xiong noted that the appetite to pay for LNG in Asia is not as high as Europe, leading to an upside risk of the TTFs in Europe. He added further escalation or disruption in Russian export could raise TTF north of $50 per metric million British thermal unit (Mmbtu).

“Accordingly, we expect prices to remain at elevated levels compared to the previous forward curves of ~$23 per Mmbtu prior to the escalation over the past few days. High prices of alternative commodities – coal and oil – are also likely to create upward pressure in the near term,” Xiong said.

“For Asian buyers with long term oil-linked contracts, likely the demand impact will be muted though only OECD countries are likely to have any imports from spot/short term tenders in the near term.”

Rystad Energy CEO Jarand Rystad noted the conflict cannot be underestimated, and that whilst he does not see a full-scale military conflict to take place, he expects a deep economic war to be “inevitable.”

“Russia cannot win an outright economic war, but it does have a major weapon to wield – oil and gas exports. Demand for oil and gas in The West is only rising, and a global energy crisis is likely to unfold,” Rystad said.

Rystad said the escalation already impacted up to 1 million barrels per day of crude supplies that pass-through Ukraine and the Black Sea. Its simulation also showed that oil prices could surge up to around $130 per barrel.

Consumers could feel its impact at the “gas pump and in their power bills,” Rystad said.

“The reality is that significantly higher prices are on the horizon in Europe and overseas.”